Buy-to-let hotspots: top regions to maximise rental income

There are many things a successful landlord must consider when selecting properties to let, and rental returns are one of the most important. If you can successfully identify those cities offering the greatest yields - rental income measured against the property's cost - you could find that becoming a landlord is like tapping into an undiscovered gold mine. So where should you be searching?

Property investors have begun to look beyond London, and to identify regions which promise yields almost three times higher than those in the capital. The most profitable locations to let tend to be regional centres, like Southampton, Manchester and Nottingham, where one in four homes are privately rented.

The most recent statistics published by HSBC on buy-to-let returns indicate the proportion of property in a region owned by landlords. Unsurprisingly, many are already tapping into this easy wealth source, so that in the highest yielding areas, private landlords own around one in four properties.

The Rankings

Rental Hotspots

Southampton boasts the highest rental yields in the UK, with an average of 8.73 per cent. Manchester, Nottingham, Blackpool and Hull complete the top five, with yields of 7.98 per cent,7.67 per cent, 7.63 per cent and 7.47 per cent respectively. In each of these profitable locations, with the exception of Hull, private landlords own the deeds of at least one in five private properties.

Each of these areas boast a number of common denominators which make them highly profitable rental prospects: relatively low house prices coupled with strong demand for rental property from large populations of students and young professionals.

Below is a list of the top ten:

#10 Cambridge

Housing privately rented: 23.91 %

Average house price: £185,414

Average monthly rent: £1,001

Gross rental yield: 6.48 %

#9 Liverpool

Housing privately rented: 21.75 %

Average house price: £91,175

Average monthly rent: £494

Gross rental yield: 6.5 %

#8 Portsmouth

Housing privately rented: 22.28 %

Average house price: £146,709

Average monthly rent: £795

Gross rental yield: 6.5 %

#7 Oxford

Housing privately rented: 26.11 %

Average house price: £254,514

Average monthly rent: £1,489

Gross rental yield: 7.02 %

#6 Coventry

Housing privately rented: 19.02 %

Average house price: £110,029

Average monthly rent: £650

Gross rental yield: 7.09 %

#5 Kingston upon Hull

Housing privately rented: 19.02 %

Average house price: £68,243

Average monthly rent: £425

Gross rental yield: 7.47 %

#4 Blackpool

Housing privately rented: 24.16 %

Average house price: £77,899

Average monthly rent: £495

Gross rental yield: 7.63 %

#3 Nottingham

Housing privately rented: 21.64 %

Average house price: £86,000

Average monthly rent: £550

Gross rental yield: 7.67

#2 Manchester

Housing privately rented: 26.85 %

Average house price: £104,244

Average monthly rent: £693

Gross rental yield: 7.98 %

#1 Southampton

Housing privately rented: 23.42 %

Average house price: £143,011

Average monthly rent: £1,040

Gross rental yield: 8.73 %

The Relationship between Success and Location

Success, however, is never entirely dependent on location. In areas with lower average yields, a little more time, experience and research is required to ensure that letting property delivers a profitable turn-over, but finding a suitable rental property is not impossible. The areas with the lowest yields have a number of factors in common: they tend to be areas which have recently experienced large and rapid price rises, which have outpaced the growth in rent. This doesn’t make them any less profitable for landlords who already own property in the vicinity; all it means is that those looking to invest must choose their property wisely. In London, in particular, there is an abundance of rental property available, so you must be able to identify the best prospects. In Westminster, for example, 38 per cent of property is privately rented, so you need a property which stands out.

Quality of Return is Preferable to Quantity

However, if you’re flexible with regards to the location of your rental property, then those looking to make money as a landlord should demonstrate a preference for properties with a high yield over those which command the highest rental price. The prices of properties in top-yielding locations tend to render them beyond the reach of many first-time buyers, although they still boast a relatively affordable price tag for landlords looking to invest in property. The rents in these areas are extremely competitive, due to the demand from young professionals who can’t afford to buy themselves pushing them up and driving up returns.

London, on the other hand, which is so often seen as a haven of property investment, actually offers a less economically sound alternative. Although it is commonly perceived as a goldmine for the intelligent investor, high house prices in the capital squeeze yields and limit the returns available. This means that despite having the highest rents in the country, the returns are far less attractive than in other areas, so it really does pay to do your research.

If you’re willing to sink the required time and effort into acquiring the right knowledge, you too could join these savvy property owners on their path to letting success, and receive an attractive paycheck as proof of your achievement.

All figures are correct as of 29th May 2014. These figures are sourced from an article in The Telegraph and can be found here: http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10859896/The-towns-that-offer-the-best-buy-to-let-returns.html.

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